Businesses, government agencies, and wealthy individuals and families have sought the advice of financial experts for many centuries, but the beginnings of the consulting industry can be traced to the Industrial Revolution in the mid- to late-1800s and early 1900s. As technology improved production processes, companies grew larger, and there was a need for experts to provide advice on financial management, staffing, production, and other issues.
Arthur D. Little is considered by many to be the first management consulting firm. It was founded by a Massachusetts Institute of Technology chemistry professor of the same name in 1886 (and incorporated in 1909). It is still in operation today, and has a respected financial services practice.
McKinsey & Company—one of the “Big 3” consulting firms (i.e., the largest consulting firms by revenue)—was founded in 1926 by James O. McKinsey, a former professor of accounting at the University of Chicago. It has a large financial consulting practice and consistently ranks at or near the top of “best consulting firms” lists. The other “Big 3” firms were founded much later.
In the 1930s, the Great Depression caused major economic damage to individuals, businesses, and the overall economy. As a result, demand grew for financial consultants to provide expertise to government agencies and financially challenged businesses. Demand for consultants grew as a result of the passage of the Glass–Steagall Banking Act and the establishment of the U.S. Securities and Exchange Commission.
In the 1960s and 1970s, the consulting industry experienced strong growth and began to focus on strategy consulting (including financial strategy). Two of the “Big 3” consulting firms were founded during these decades—the Boston Consulting Group in 1963 and Bain & Company in 1973. Both have large practice areas in financial consulting.
In the 1990s and early 2000s, increasingly strict tax laws and government regulation of businesses and the financial services fueled strong growth in tax and accounting consultancy firms. One noteworthy law is the Sarbanes–Oxley Act of 2002, which addressed accounting and corporate governance scandals and implemented stricter controls on corporations and the accounting industry. The Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 increased financial regulation and the need for financial consultants, but many of its stronger components have been weakened by Congress. The Patient Protection and Affordable Care Act of 2010 allowed tens of millions of previously uninsured Americans to obtain health insurance, but created a variety of financial and compliance challenges for businesses, which, again, fueled demand for consultants.
The COVID-19 pandemic, which began in China in 2019 and caused more than 4 million deaths by mid-2021, had a major negative affected on businesses and slowed demand for consultants in some consulting specialties and for those who provided services to specific industries (hospitality, restaurant, airline, cruise line industries). Consulting firms that provided services to a variety of sectors (e.g., financial, healthcare, information technology, manufacturing, retail) performed better during the pandemic than those that specialized in just one or two areas. Overall, demand remained strong during the pandemic for financial consultants because their work is integral to an organization’s success during good and bad times. Today, the consulting industry continues to enjoy strong growth. More than 334,000 new jobs will be added in the professional and business services industry (which includes consulting firms) from 2019 to 2029, according to the U.S. Department of Labor.